As a cure for high drug prices, outcomes-based deals aren't delivering yet

Facing growing calls for regulating prescription drug prices, the pharmaceutical industry has touted a preferred alternative for making drugs more affordable—private deals in which health plans pay them more or less for a drug depending on how well it works for plan members.

But insurers and independent experts say outcomes-based contracting has made slow and uncertain progress since it was introduced in the past decade, with few if any published results. While it may help on the margins with some drugs, many observers doubt it offers a viable solution to the broad problem of prescription drug affordability in the U.S.

Policymakers now are more focused on speeding the introduction of cheaper generic and biosimilar products, restructuring the patent system, and indexing drug prices to those in other countries.

“Attention has really shifted to increasing competition and addressing some of the market issues rather than trying to negotiate additional discounts under the status quo,” said Sean Dickson, a pharmaceutical spending expert at the Pew Charitable Trusts.

Still, there is hope that newer forms of these outcomes-based agreements can be used to provide more affordable access to extremely high-priced specialty products and gene therapies such as CAR-T cancer therapies, by reducing the upfront cost and tying additional payments to clinical effectiveness.

Dr. Michael Sherman, chief medical officer of Harvard Pilgrim Health Care, has been in the forefront of this type of contracting for the past several years. The 1.2 million-member health plan has signed more than 15 outcomes-based agreements with drugmakers, including a deal last year with Spark Therapeutics on Luxturna, an $850,000 gene therapy for a form of hereditary vision loss.

He expressed mixed feelings about how the experiment is going, though he believes such deals are necessary to ensure insurers can afford to provide access to enormously expensive new drugs. He’s evaluating which agreements to keep, which ones to drop because they’re too much work or aren’t saving enough money, and how to structure future deals differently.

But he, like other experts, says there’s a limit to how far value-based pricing agreements can go. That’s because these deals are difficult to negotiate and carry out, many drugs don’t have readily measurable outcomes through claims data, and patients may switch plans before longer-term results can be assessed. Some think the administrative costs could offset potential savings.

The biggest limitation, however, is that these deals don’t directly address the issue of the high prices set by drugmakers. “It’s not the solution, but it’s part of the solution set,” Sherman said. “We’re negotiating off starting prices set by pharma companies. A value-based agreement doesn’t mean getting to fair value.”

“If outcomes-based agreements aren’t based on getting the initial price right, a partial refund a year later doesn’t all of a sudden bring a drug into the value range,” said David Whitrap, vice president of communications for the Institute for Clinical and Economic Review, which evaluates the  cost-effectiveness of prescription drugs.

Interest by health plans and drugmakers in outcomes-based agreements seems fairly strong, with at least 50 publicly disclosed deals. But contracting activity has slowed as executives on both sides take stock of their experience over the past several years, said Jay Jackson, an Avalere Health consultant who focuses on the pharmaceutical industry.

Yet the Pharmaceutical Research and Manufacturers of America contends the strategy is working. It reported in a brief last year that Aetna and Harvard Pilgrim enrollees had 28% lower copays from 2015 through 2017 than enrollees in other plans for diabetes, cholesterol and HIV medicines included in the insurers’ value-based drug purchasing contracts.

On the public payer side, Colorado, Michigan and Oklahoma, have received approval from the CMS to enter outcomes-based rebate agreements with drug manufacturers for their Medicaid programs, and other states are considering this model.

Oklahoma, the first state to receive the green light last year, recently signed performance-based rebate deals for two antipsychotic drugs, a drug for treating skin infections, and a product for seizures, said Nancy Nesser, pharmacy director of the Oklahoma Health Care Authority. Outcomes will be evaluated either annually or semi-annually.

“We’ll have to figure out how much it’s costing us to do this,” she said. “We’ll see if the rebates will cover that.”

Meanwhile, the CMS is weighing whether and how to move forward on outcomes-based drug agreements for Medicare after pulling out of a controversial pay-for-performance deal with Novartis last year for the $475,000 Kymriah cancer gene therapy.

It is unclear whether the CMS has authority to negotiate prices directly with drugmakers, given the congressional ban on the CMS directly negotiating prices in the Part D program. This may have to be done through a Center for Medicare and Medicaid Innovation demonstration, experts said.

Despite PhRMA’s cheerleading for value-based pricing, pharmaceutical companies have varied sharply in their willingness to negotiate such deals and place themselves at significant performance-based risk, payers and analysts say.

Oklahoma’s Nesser said only four of the 27 companies the state agency met with were willing to negotiate an outcomes-based price contract.

The pharmaceutical industry argues that the reluctance is at least partly due to federal regulatory barriers, though some independent observers are skeptical of that view.

PhRMA particularly cites the need for regulatory clarification that outcomes-based price deals won’t be factored into the best-price discounts they must give to state Medicaid programs or considered violations of the anti-kickback statute.

“Some of our companies have been able to find particular types of value-based contracts they feel mark a path through the thicket of regulatory barriers,” said Julie Wagner, PhRMA’s assistant general counsel. “Others are more wary and are holding back until those questions are resolved.”

Sens. Bill Cassidy (R-La.) and Mark Warner (D-Va.) released a draft bill in January to create narrow exemptions for performance-based drug payment contracts from the Medicaid best-price rule, the anti-kickback statute and the Stark law.

There’s also uncertainty related to HHS’ proposed rule to exclude prescription drug rebates paid by manufacturers to pharmacy benefit managers from safe-harbor protection under the anti-kickback statute.

That rule, designed to encourage drugmakers to pass discounts directly to patients, could put outcomes-based rebates in legal limbo, experts said. What makes it problematic is that under outcomes-based agreements, payers and drugmakers don’t know whether there will be a rebate or how much it will total until many months after the drug is purchased.

“We won’t know the results for 16 months,” said Chronis Manolis, senior vice president of pharmacy services for UPMC Health Plan, which has signed several outcomes-based drug pricing deals. “I can’t pass something back that I don’t even know.”

The CMS did not provide comment by deadline.

Still, some drug companies are aggressively seeking innovative, results-based purchasing deals, knowing they’re likely to face resistance from payers to the high price tags of their products if they don’t accept risk. And payers are open to their pitches.

“We are seeing uptake because people are extremely worried about these extremely high-priced drugs generally targeted toward orphan populations,” said Kathy Hughes, managing director at Avalere Health. “Unless these therapies live up to the promise of being curative, there will be some refund for them.”

Spark Therapeutics has signed a deal with Harvard Pilgrim that links payment for Luxturna—for patients with confirmed biallelic RPE65 mutation-associated retinal dystrophy—to both short-term efficacy within 90 days and longer-term durability at 30 months. 

In addition, Spark said it’s talking with the CMS about a long-term payment demonstration for Medicare and Medicaid patients, tying 50% of the price of Luxturna to efficacy and durability over three to five years. That would be done either through installment payments or a rebate. 

Harvard Pilgrim’s Sherman was impressed that Spark offered his plan such a bold risk-based deal. “I give them a lot of credit,” he said. “It was the first treatment for the class. They know damn well we wouldn’t have restricted it for the right population. They acknowledged that $850,000 is a high price to justify if it doesn’t work. But they had confidence in the product.”

Some experts see Spark’s proposal as a foreshadowing of the next generation of outcomes-based pricing deals, placing greater upfront risk on drug manufacturers with the potential of greater rewards later. “Instead of a money-back guarantee, you could think about an initial payment plus bonus payments if the drug performs as hoped,” said Rachel Sachs, associate professor of law at Washington University. 

AstraZeneca is another drugmaker that’s been active, pointing to more than 40 value-based agreements across its therapeutic areas. 

In January, the company announced an outcomes-based deal with UPMC for its heart-attack prevention drug Brilinta, with payment linked to cardiovascular outcomes for patients treated with the drug following a recent hospitalization for heart attack or unstable angina. UPMC is now offering the brand-name product on its generic tier, potentially saving members hundreds of dollars a year.

Last September, UPMC Health Plan announced what it called an unprecedented deal with Boehringer Ingelheim tying payment for the Type 2 diabetes drug Jardiance to the total costs of care for all UPMC diabetes patients treated.

Some observers say pharma companies are now more willing to engage in value-based discussions of pricing and payment arrangements because they’re feeling rising political heat on affordability. The Congressional Budget Office just reported that net spending on specialty drugs in Medicare Part D rose from $8.7 billion in 2010 to $32.8 billion in 2015, while Medicaid’s net spending on these drugs more than doubled to $9.9 billion during that period.

“Pharma trends are unsustainable,” said Kim Bimestefer, executive director of the Colorado Department for Health Care Policy and Financing. The state has seen a 171% rise in Medicaid spending on high-cost and specialty drugs over the past six years, which is why it’s launching an outcomes-based contracting program. “Why are prices where they are? We must hold Big Phar-ma accountable.”

“In the court of public opinion, if you say your drug is worth a couple million, the gene therapy companies understand if they’re not willing to go at-risk they won’t be able to defend that pricing,” Sherman said. 

With political pressure mounting, some pharmaceutical companies are even showing openness to setting their initial prices lower than anticipated based on the Institute for Clinical and Economic Review’s cost-effectiveness evaluations, Whitrap said. Examples include the eczema drug Dupixent, which Sanofi and Regeneron priced at around $35,000 rather than the expected $60,000, and the cholesterol inhibitor Praluent, whose price those same two manufacturers reduced to around $4,000 from $14,000.

But drug companies have been reluctant to enter risk-based deals for cancer treatments, knowing it’s particularly tough for payers to refuse to cover them. “In this country at this point, if there is an unmet need, health plans have virtually no ability to say no,” Sherman said.

UPMC’s Manolis said outcomes-based deals are complex but that his organization feels the need to advance the model for shared financial risk for drugs. Unlike in previous outcomes-based agreements, UPMC wants to publicly report the results through its Center for Value-Based Pharmacy Initiatives, so everyone can learn from the experience. Still, he said no one should expect rapid cost or quality breakthroughs.

“We’ve got to crawl before we can walk,” he said. “We’re starting to get closer to the value price of drugs. But these are very complex paradigm shifts and we won’t get there overnight.”

Correction: An earlier version of this story misstated what type of drug Brilinta is; it is a heart-attack prevention drug.